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US Secretary of the Treasury (1789– 1795)
Alexander Hamilton was appointed as the first United States Secretary of the Treasury on September 11, 1789 by President George Washington. Hamilton left office on the last day of January 1795. Much of the structure of the was worked out in those five years, beginning with the structure and function of the cabinet itself. Biographer Forrest McDonald argues that Hamilton saw his office, like that of the British First Lord of the Treasury, as the equivalent of a Prime Minister; Hamilton would oversee his colleagues under the elective reign of George Washington. Washington did request Hamilton's advice and assistance on matters outside the purview of the Treasury Department. In 1791, while Secretary, Hamilton was elected a Fellow of the American Academy of Arts and Sciences. Hamilton submitted various financial reports to Congress. Among these are the First Report on the Public Credit, Operations of the Act Laying Duties on Imports, Report on a National Bank, On the Establishment of a Mint, Report on Manufactures, and the Report on a Plan for the Further Support of Public Credit.Hamilton; Hamilton; pp. 1, 54, 106, 149, 192, 465 So, the great enterprise in Hamilton's project of an administrative republic is the establishment of stability."Hamilton's Administrative Republic and the American Presidency", in The Presidency in the Constitutional Order, edited by Joseph M. Bessette and Jeffrey Tulis (Baton Rouge: Louisiana State University Press, 1981), p. 93 Report on Public Credit Before the adjournment of the House in September 1789, they requested Hamilton to make a report on suggestions to improve the public credit by January 1790.Murray, p. 121. Hamilton had written to Robert Morris as early as 1781 that fixing the public credit will win their objective of independence. The sources that Hamilton used ranged from Frenchmen such as Jacques Necker and Montesquieu to British writers such as Hume, Hobbes, and Malachy Postlethwayt.Chernow, p. 296. While writing the report he also sought out suggestions from contemporaries such as John Knox Witherspoon, and Madison. Although they agreed on additional taxes such as distilleries and duties on imported liquors and land taxes, Madison feared that the securities from the government debt would fall in foreign hands.Schachner, pp. 244–45. In the report, Hamilton felt that the debt that the United States had accrued during the Revolutionary War was the price it paid for its liberty. He argued that liberty and property security were inseparable and that the government should honor the contracts, as they formed the basis of public and private morality. To Hamilton, the proper handling of the government debt would also allow America to borrow at affordable interest rates and would also be a stimulant to the economy.Chernow, p. 297. Hamilton divided the debt into national and state, and further divided the national debt into foreign and domestic debt. While there was agreement on how to handle the foreign debt (especially with France), there was not with regards to the national debt held by domestic creditors. During the Revolutionary War, affluent citizens had invested in bonds, and war veterans had been paid with promissory notes and IOUs that plummeted in price during the Confederation. In response, the war veterans sold the securities to speculators for as little as fifteen to twenty cents on the dollar.Murray, p. 124.Chernow, pp. 297–98. Hamilton felt the money from the bonds should not go to the soldiers, but the speculators that had bought the bonds from the soldiers, as they had little faith in the country's future. The process of attempting to track down the original bond holders along with the government showing discrimination among the classes of holders if the war veterans were to be compensated also weighed in as factors for Hamilton. As for the state debts, Hamilton suggested to consolidate it with the national debt and label it as federal debt, for the sake of efficiency on a national scale.Chernow, pp. 298–99. The last portion of the report dealt with eliminating the debt by utilizing a sinking fund that would retire five percent of the debt annually until it was paid off. Due to the bonds being traded well below their face value, the purchases would benefit the government as the securities rose in price.Chernow, p. 300. When the report was submitted to the House of Representatives, detractors soon began to speak against it. The notion of programs that resembled British practice were wicked along with the power of balance being shifted away from the Representatives to the executive branch were some of the prejudices that resided within the House. William Maclay suspected that that several congressmen were involved in government securities, saw Congress in an unholy league with New York speculators.Chernow, p. 302. Congressman James Jackson also spoke against New York with allegations of speculators attempting to swindle those who had yet heard about Hamilton's report.Chernow, p. 303. The involvement of those in Hamilton's circle such as Schuyler, William Duer, James Duane, Gouverneur Morris, and Rufus King as speculators was not favorable to those against the report, either, though Hamilton personally did not own or deal a share in the debt.Chernow, p. 304.Schachner, p. 250. Madison eventually spoke against it by February 1790. Although he was not against current holders of government debt to profit, he wanted the windfall to go to the original holders. Madison did not feel that the original holders had lost faith in the government, but sold their securities out of desperation.Chernow, p. 305. The compromise was seen as egregious to both Hamiltonians and their dissidents such as Maclay, and Madison's vote was defeated 36 votes to 13 on February 22.Schachner, p. 255. The fight for the national government to assume state debt was a longer issue, and lasted over four months. During the period, the resources that Hamilton was to apply to the payment of state debts was requested by Alexander White, and was rejected due to Hamilton's not being able to prepare information by March 3, and was even postponed by his own supporters in spite of configuring a report the next day (which consisted of a series of additional duties to meet the interest on the state debts).Schachner, pp. 297–98. Some of the other issues involving Hamilton were bypassing the rising issue of slavery in Congress after Quakers petitioned for its abolition (though he returned to the issue the following year),Chernow, p. 307. having Duer resign as Assistant Secretary of the Treasury, and the vote of assumption being voted down 31 votes to 29 on April 12.Schachner, pp. 258–59. The temporary location of the capital from New York City also played a role, as Tench Coxe was sent to speak to Maclay to bargain about the capital being temporarily located to Philadelphia, as a single vote in the Senate was needed and five in the House for the bill to pass.Schachner, p. 263. The bill passed in the Senate on July 21 and in the House 34 votes to 28 on July 26, 1790. Report on a National Bank Hamilton's Report on a National Bank was a projection from the first Report on the Public Credit. Although Hamilton had been forming ideas of a national bank as early as 1779,Schachner, p. 268. he gathered ideas in various ways over the past eleven years. These included theories from Adam Smith,Kaplan, p. 21. extensive studies on the Bank of England, the blunders of the Bank of North America and his experience in establishing the Bank of New York. He also used American records from James Wilson, Pelatiah Webster, Gouverneur Morris, and from his assistant Treasury secretary Tench Coxe. Hamilton suggested that Congress should charter the National Bank with a capitalization of $10 million, one-fifth of which would be handled by the Government. Since the Government did not have the money, it would borrow the money from the bank itself, and repay the loan in ten even annual installments.McDonald, p. 194. The rest was to be available to individual investors.Cooke, p. 89. The bank was to be governed by a twenty-five member board of directors that was to represent a large majority of the private shareholders, which Hamilton considered essential for his being under a private direction. Hamilton's bank model had many similarities to that of the Bank of England, except Hamilton wanted to exclude the Government from being involved in public debt, but provide a large, firm, and elastic money supply for the functioning of normal businesses and usual economic development, among other differences.McDonald, pp. 194–95. For tax revenue to ignite the bank, it was the same as he had previously proposed; increases on imported spirits: rum, liquor, and whiskey.McDonald, pp. 195–96. The bill passed through the Senate practically without a problem, but objections of the proposal increased by the time it reached the House of Representatives. It was generally held by critics that Hamilton was serving the interests of the Northeast by means of the bank,Cooke, p. 90. and those of the agrarian lifestyle would not benefit from it.Schachner, p. 270. Among those critics was James Jackson of Georgia, who also attempted to refute the report by quoting from The Federalist Papers. Madison and Jefferson also opposed the bank bill; however, the potential of the capital not being moved to the Potomac if the bank was to have a firm establishment in Philadelphia (the current capital of the United States) was a more significant reason, and actions that Pennsylvania members of Congress took to keep the capital there made both men anxious.McDonald, pp. 199–200. Madison warned the Pennsylvania congress members that he would attack the bill as unconstitutional in the House, and followed up on his threat.McDonald, p. 200. Madison argued his case of where the power of a bank could be established within the Constitution, but he failed to sway members of the House, and his authority on the constitution was questioned by a few members.McDonald, pp. 200–01. The bill eventually passed in an overwhelming fashion 39 to 20, on February 8, 1791.Schachner, p. 271. Washington hesitated to sign the bill, as he received suggestions from Attorney-General Edmund Randolph and Thomas Jefferson. Jefferson dismissed the 'necessary and proper' clause as reasoning for the creation of a national bank, stating that the enumerated powers "can all be carried into execution without a bank."Schachner, pp. 271–72. Along with Randolph and Jefferson's objections, Washington's involvement in the movement of the capital from Philadelphia is also thought to be a reason for his hesitation.McDonald, pp. 202–03. In response to the objection of the 'necessary and proper' clause, Hamilton stated that "Necessary often means no more than needful, requisite, incidental, useful, or conductive to", and the bank was a "convenient species of medium in which they (taxes) are to be paid.".Schachner, pp. 272–73. Washington would eventually sign the bill into law. Establishing the U.S. Mint , one of the first gold mints following the Coinage Act of 1792]] In 1791, Hamilton submitted Report on the Establishment of a Mint to the House of Representatives. Most of Hamilton's ideas for this report were from European economists, resolutions from Continental Congress meetings from 1785 and 1786, and from people such as Gouverneur Morris and Thomas Jefferson.Mitchell, p. 118.McDonald, p. 197. Due to the Spanish coin being the most circulated coin in the United States at the time, Alexander Hamilton proposed that the minting of the United States dollar weighing almost as much as the Spanish peso would be the simplest way to introduce a national currency.Engerman; Gallman, p. 644. Hamilton wanted the U.S. dollar system to be set for decimals rather than the eights like the Spanish mint.Engerman; Gallman, pp. 644–45. In spite of preferring a monometallic gold standard,Studentski; Krooss, p. 62. he issued a bimetallic currency at ratio that was to be similar to most European countries.Cooke, p. 87. What was different from the European currencies was his desire to overprice the gold on the grounds that the United States would always receive an influx of silver from the West Indies. Hamilton desired the minting of small value coins such as silver ten-cent, copper, and half-cent pieces, for reducing the cost of living for the poor.Cooke, p. 88.McDonald, p. 198. One of his main objectives was for the general public to become accustomed to handling money on a frequent basis. By 1792, Hamilton's principles were adopted by Congress, resulting in the Coinage Act of 1792, and the creation of the United States Mint. There was to be a ten dollar Gold Eagle coin, a silver dollar, and fractional money ranging from one-half to fifty cents. The coining of silver and gold was issued by 1795. Revenue Cutter Service Smuggling off American coasts was an issue before the Revolutionary War, and after the Revolution it was more problematic. Along with smuggling, lack of shipping control, pirating, and a revenue unbalance were also major problems.Gibowicz, p. 256. In response, Hamilton proposed to Congress to enact a naval police force called revenue cutters in order to patrol the waters and assist the custom collectors with confiscating contraband.Chernow, p. 340. This idea was also proposed to assist in tariff controlling, boosting the American economy, and promote the merchant marine. It is thought that his experience obtained during his apprenticeship with Nicholas Kruger was influential in his decision-making.Chernow, p. 32. Concerning some of the details of the "System of Cutters",Gibowicz, pp. 256–57. Hamilton wanted the first ten cutters in different areas in the United States, from New England to Georgia.Storbridge, p. 2. Hamilton also wanted those cutters to be armed with ten muskets and bayonets, twenty pistols, two chisels, one broad-ax and two lanterns. Hamilton also wanted the fabric of the sails to be domestically manufactured. Hamilton was also concerned of the employees' food supply and etiquette when boarding ships, and made provisions for each. Congress established the Revenue Cutter Service on August 4, 1790, which is viewed as the birth of the United States Coast Guard. Whiskey as tax revenue One of the principal sources of revenue Hamilton prevailed upon Congress to approve was an excise tax on whiskey. In his first Tariff Bill in January of 1790, Hamilton proposed to raise the three million dollars needed to pay for government operating expenses and interest on domestic and foreign debts by means of an increase on duties on imported wines, distilled spirits, tea, coffee, and domestic spirits. It failed, with Congress complying with most recommendations excluding the excise tax on Whiskey (Madison's tariff of the same year was a modification of Hamilton's that involved only imported duties and was passed in September).Stockwell, p. 357. In response of diversifying revenues, as three-fourths of revenue gathered was from commerce with Great Britain, Hamilton attempted once again during his Report on Public Credit when presenting it in 1790 to implement an excise tax both imported and domestic spirits.Chernow, p. 342.Murray, p. 141. The taxation rate was graduated in proportion to the whiskey proof, and Hamilton intended to equalize the tax burden on imported spirits with imported and domestic liquor. In lieu of the excise on production citizens could pay 60 cents by the gallon of dispensing capacity, along with an exemption on small stills used exclusively for domestic consumption. He realized the loathing that the tax would receive in rural areas, but thought of the taxing of spirits more reasonable than land taxes. Opposition initially came from Pennsylvania's House of Representatives protesting the tax. William Maclay had noted that not even the Pennsylvanian legislators had been able to enforce excise taxes in the western regions of the state.Chernow, pp. 342–43. Hamilton was aware of the potential difficulties and proposed inspectors the ability to search buildings that distillers were designated to store their spirits, and would be able to search suspected illegal storage facilities to confiscate contraband with a warrant.Murray, pp. 141–42. Although the inspectors were not allowed to search houses and warehouses, they were to visit twice a day and file weekly reports in extensive detail.Chernow, p. 343. Hamilton cautioned against expedited judicial means, and favored a jury trial with potential offenders. As soon as 1791 locals began to shun or threaten inspectors, as they felt the inspection methods were intrusive. Inspectors were also tarred and feathered, blindfolded, and whipped. Hamilton had attempted to appease the opposition with lowered tax rates, but it did not suffice.Chernow, p. 468. Strong opposition to the whiskey tax by cottage producers in remote, rural regions erupted into the Whiskey Rebellion in 1794; in Western Pennsylvania and western Virginia, whiskey was the basic export product and was fundamental to the local economy. In response to the rebellion, believing compliance with the laws was vital to the establishment of federal authority, Hamilton accompanied to the rebellion's site President Washington, General Henry "Light Horse Harry" Lee, and more federal troops than were ever assembled in one place during the Revolution. This overwhelming display of force intimidated the leaders of the insurrection, ending the rebellion virtually without bloodshed.Mitchell, I:308–31. Manufacturing and industry , overlooking the Great Falls of the Passaic River in Paterson, New Jersey, where Hamilton envisioned using the falls to power new factories]] Hamilton's next report was his Report on Manufactures. Although he was requested by Congress on January 15, 1790 for a report for manufacturing that would expand the United States' independence, the report was not submitted until December 5, 1791.Schachner, pp. 274, 277. In the report, Hamilton quoted from Wealth of Nations and used the French physiocrats as an example for rejecting agrarianism and the physiocratic theory; respectively.McDonald, p. 233. Hamilton also refuted Smith's ideas of government noninterference, as it would have been detrimental for trade with other countries.McDonald, p. 244. Hamilton also thought of the United States being a primarily agrarian country would be a disadvantage in dealing with Europe.Cooke, p. 100. In response to the agrarian detractors, Hamilton stated that the agriculturists' interest would be advanced by manufactures,Schachner, p. 276. and that agriculture was just as productive as manufacturing. Among the ways that the government could assist in manufacturing, Hamilton mentioned levying protective duties on imported foreign goods that were also manufactured in the United States,Cooke, p. 101. to withdraw duties levied on raw materials needed for domestic manufacturing,Schachner, p. 277. pecuniary boundaries, and encouraging immigration for people to better themselves in similar employment opportunities.Mitchell, p. 145. Congress shelved the report without much debate (except for Madison's objection to Hamilton's formulation of the General Welfare clause, which Hamilton construed liberally as a legal basis for his extensive programs).Stephen F. Knott, Alexander Hamilton and the Persistence of Myth (2002), pp. 43, 54, 56, 83, 108. Subsequently in 1791, with his ideas for manufacturing being a major influence, Hamilton, along with Coxe and several entrepreneurs from New York and Philadelphia helped form the Society for the Establishment of Useful Manufactures, a private industrial corporation. The location at Great Falls of the Passaic River in New Jersey was selected due to access to raw materials, it being densely inhabited, and having access to water power from the falls of the Passaic.McDonald, p. 231. The factory town was named Paterson after New Jersey's Governor William Paterson, who signed the charter.McDonald, p. 232. The profits were to derive from specific corporates rather than the benefits to be conferred to the nation and the citizens, which was unlike the report.Cooke, p. 102. Hamilton also suggested the first stock to be offered at $500,000 and to eventually increase to $1 million, and welcomed state and national government subscriptions alike.Schachner, p. 280 The company was never successful: numerous shareholders reneged on stock payments, some members soon went bankrupt, and William Duer, the governor of the program, was sent to debtors' prison.Cooke, p. 103. In spite of Hamilton's efforts to mend the disaster, the company would expire by 1796. Emergence of parties During Hamilton's tenure as Treasury Secretary, political factions began to emerge. A Congressional caucus, led by James Madison and William Branch Giles, began as an opposition group to Hamilton's financial programs, and Thomas Jefferson joined this group when he returned from France. Hamilton and his allies began to call themselves Federalists. The opposition group, now called the Democratic-Republican Party by political scientists, was at the time known as Republicans. Hamilton assembled a nationwide coalition to garner support for the Administration, including the expansive financial programs Hamilton had made Administration policy and especially the president's policy of neutrality in the European war between Britain and France. Hamilton's public relations campaign attacked the French minister Edmond-Charles Genêt (he called himself "Citizen Genêt") who tried to appeal to voters directly, which Federalists denounced as foreign interference in American affairs.Christopher J. Young, "Connecting the President and the People: Washington's Neutrality, Genet's Challenge, and Hamilton's Fight for Public Support," Journal of the Early Republic, (Fall 2011) 31#3 pp. 435–66 If Hamilton's administrative republic was to succeed, Americans had to see themselves as nation citizens, and experience an administration that proved firm and demonstrated the concepts found within the United States Constitution. The Federalists did impose some internal direct taxes but they departed from the most implications of the Hamilton administrative republic as risky.Balogh 2009, 72–110 The Jeffersonian Republicans opposed banks and cities, and favored France. They built their own national coalition to oppose the Federalists. Both sides gained the support of local political factions; each side developed its own partisan newspapers. Noah Webster, John Fenno, and William Cobbett were energetic editors for the Federalists; Benjamin Franklin Bache and Philip Freneau were fiery Republican editors. All the newspapers were characterized by intense personal attacks, major exaggerations and invented claims. In 1801, Hamilton established a daily newspaper, the New York Evening Post and brought in William Coleman as editor. It is still publishing (as the New York Post).Allan Nevins, The Evening post: a century of journalism (1922) ch. 1 online The quarrel between Hamilton and Jefferson is the best known and historically the most important in American political history. Hamilton's and Jefferson's incompatibility was heightened by the unavowed wish of each to be Washington's principal and most trusted advisor.Cooke, pp. 109–10 Jay Treaty and Britain When France and Britain went to war in early 1793, all four members of the Cabinet were consulted on what to do. They and Washington unanimously agreed to remain neutral, and to send Genêt home.Stanley M. Elkins, and Eric McKitrick, The Age of Federalism: The Early American Republic, 1788–1800 (1994), pp. 336–41. However, in 1794 policy toward Britain became a major point of contention between the two parties. Hamilton and the Federalists wished for more trade with Britain, the new nation's largest trading partner. The Republicans saw Britain as the main threat to republicanism and proposed instead a trade war.Schachner, pp. 327–28. To avoid war, Washington sent Chief Justice John Jay to negotiate with the British; Hamilton largely wrote Jay's instructions. The result was Jay's Treaty. It was denounced by the Republicans but Hamilton mobilized support up and down the land.Todd Estes, "Shaping the Politics of Public Opinion: Federalists and the Jay Treaty Debate." Journal of the Early Republic (2000) 20(3): 393–422. in JSTOR The Jay Treaty passed the Senate in 1795 by exactly the required two-thirds majority. The Treaty resolved issues remaining from the Revolution, averted war, and made possible ten years of peaceful trade between the United States and Britain.Elkins, and McKitrick, The Age of Federalism ch 9 Historian George Herring notes the "remarkable and fortuitous economic and diplomatic gains" produced by the Treaty.George C. Herring, From Colony to Superpower: U.S. Foreign Relations since 1776 (2008) p. 80 Several European nations had formed a League of Armed Neutrality against incursions on their neutral rights; the Cabinet was also consulted on whether the United States should join it, and decided not to. It kept that decision secret, but Hamilton revealed it in private to George Hammond, the British Minister to the United States, without telling Jay or anyone else. (His act remained unknown until Hammond's dispatches were read in the 1920s). This "amazing revelation" may have had limited effect on the negotiations; Jay did threaten to join the League at one point, but the British had other reasons not to view the League as a serious threat.Bemis, Samuel Flagg, Jay's Treaty (quoted); Elkins and McKitrick, pp. 411 ff. Second Report on Public Credit Before leaving his post in 1795, Hamilton submitted Report on a Plan for the Further Support of Public Credit to Congress to curb the debt problem. Hamilton grew dissatisfied with what he viewed as a lack of a comprehensive plan to fix the public debt. He wished to have new taxes passed with older ones made permanent and stated that any surplus from the excise tax on liquor would be pledged to lower public debt. His proposals were included into a bill by Congress within slightly over a month after his departure as treasury secretary.Chernow, p. 480 References Category:Alexander Hamilton